Experts believe the risk/return ratio has tilted towards tax compliance, writes Colm Keena

Lower tax rates are the key factor behind improved compliance with the State's revenue laws, say tax practitioners.

When the lower rates are combined with an increased likelihood of being caught, and the significant interest and penalties likely to accrue for those who are caught, then the risk/return ratio swings in favour of compliance, they say.

Also, the Revenue in recent years has been getting new powers that allow it access to information that was hitherto denied to it, such as access to documentation held by banks concerning classes of individuals. Persons with non-resident accounts would be a class in point.

There is also increased sharing of information both between State agencies here and in foreign jurisdictions, making it harder for people to hide significant amounts of money from the Revenue.

While the prosecution and imprisonment of people guilty of serious tax crime has not (yet?) become a feature here, an increased level of punishment of offenders has occurred in recent times.

The Revenue's 2003 annual report points to the financial penalties it can impose when discussing the issue of Revenue prosecutions and the sentences imposed by the courts.

The report lists six cases where there were convictions during 2003 for serious tax evasion. In no case was anyone sent to jail.

"The level of severity of the sentences imposed is, of course, a matter for the courts," the report states. "The courts take account of the fact that Revenue imposes penalties."

In the case of one of the 2003 convictions, Mr Brendan Galligan, the judge deferred sentencing to allow Mr Galligan put his tax affairs in order, the report points out.

"The tax, interest and penalties collected in relation to the two years for which Mr Galligan was convicted totalled approximately €125,000 out of a total settlement of in excess of €1.65 million relating both to Mr Galligan and his company. The total penalties included in that sum were €517,712."

Mr Galligan was fined €1,750 by the court for filing incorrect income tax returns but clearly paid significantly more in penalties.

The huge tax takes coming from the Revenue's various special investigations is something that is likely to have peaked. A year or two will probably see the end of these investigations, all of which have to do with historical matters.

Meanwhile the amount of normal tax flowing in on a day-to-day basis is huge.

For the Revenue, the most efficient use of resources is to target the ordinary taxpayer, as against spending money and working hours trying to discover who lies behind an offshore trust, or trying to prosecute the discovered beneficiary of some exotic trust.

The special investigations of recent years have brought in approximately €1.5 billion. This compares with gross receipts for 2003 of €43.77 billion.

The Revenue got an average daily lodgement of €143.6 million during 2003, with the largest amount lodged in a single day being more than €1 billion.

Net receipts for the year were €32 billion, with the largest contribution coming from VAT (€9.7 billion) followed by the PAYE sector (€7.2 billion).

Income tax from the self-employed and other non-PAYE sources brought in a total of €1.3 billion.

Taxing workers and shoppers remains the bread and butter of the Revenue service.